State launches review of toll-road finances

A car enters the northbound 241 toll road at Oso Parkway in Rancho Santa Margarita on Monday. Oso is the start of the 241 toll road which opened in 1993. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

A car enters the northbound 241 toll road at Oso Parkway in Rancho Santa Margarita on Monday. Oso is the start of the 241 toll road which opened in 1993. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

Cars drive on the 241 toll road north of Oso Parkway in Rancho Santa Margarita on Monday. Oso Parkway is the start of the 241 toll road which opened in 1993. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

Cars drive northbound on the 241 toll road north of Oso Parkway in Rancho Santa Margarita on Monday. Oso Parkway is the start of the 241 toll road which opened in 1993. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

A car drives southbound on the 241 toll road at Antonio Parkway in Rancho Santa Margarita on Monday. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

Cars wind their way around the foothills in northern Orange County on the 241 toll road on Monday. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

The northern end of the 241 toll road is where it meets the 91 freeway in Anaheim. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

The 241 toll road winds through mission Viejo near Oso Reservoir, at right. The Los Alisos Blvd. over crossing is at bottom. The 2006 view looks north west. JEBB HARRIS, FILE: ORANGE COUNTY REGISTER

1 of 11

A vehicle enters the northbound 241 toll road at Oso Parkway in Rancho Santa Margarita on Monday. Oso is the start of the 241 toll road which opened in 1993. PAUL BERSEBACH, ORANGE COUNTY REGISTER

1 of 11

Driving north on the 241 toll road near the Windy Ridge toll plaza on the 241. MARK RIGHTMIRE, THE REGISTER

1 of 11

A commuter pays a toll at the Catalina View toll plaza on the 73 roll road in this file photo. KEVIN SULLIVAN, ORANGE COUNTY REGISTER

A car enters the northbound 241 toll road at Oso Parkway in Rancho Santa Margarita on Monday. Oso is the start of the 241 toll road which opened in 1993. PAUL BERSEBACH, ORANGE COUNTY REGISTER

Graphics

Orange County's toll roads have slid farther and farther behind the confident projections of ridership and revenue on which they were built, prompting an unusual state review of their finances.

The roads were the first of their kind in California, a bet that drivers would be willing to pay to escape the grind of Southern California freeway traffic. Thousands of drivers take the toll roads every day, but the bet has not paid off as well as operators expected.

The toll roads have raised rates, shifted millions of dollars in funds and refinanced billions of dollars in debt to keep their financial footing in recent years. They face more than $10.5 billion in debt payments and interest, but acting chief executive Lisa Telles said the roads have covered their obligations so far, and will continue to do so.

The state's review comes just as toll-road operators prepare to borrow potentially tens of millions of dollars to add a few miles to the 241 toll road. Telles said the review should not hurt the roads' ability to get that financing, and those who asked for the review said that was not their intention.

"This would not represent an attempt by the (state) treasurer to block an expansion," said Tom Dressler, a spokesman for Treasurer Bill Lockyer, who ordered the review. "It's complying with a request ... to look into the situation."

The first of the toll roads – the 241, which slides along the foothills of central-eastern Orange County – opened in 1993 with a traffic jam of eager motorists on the first day. A state senator who had championed the toll roads predicted: "It's not much of a gamble. ... People around here will do anything to avoid gridlock."

Another major toll road, the 73, opened a few years later, running west of of the I-5 and I-405 freeways and roughly following their contours. Both toll roads were built with borrowed money, to be paid off with toll revenue.

But financial filings show that toll revenues on both roads have steadily fallen behind projections in recent years. The roads tallied more than 250,000 trip transactions every weekday in the past fiscal year, but that was far below what planners had expected.

241 more successful

The 241, which, along with the branching 261 and 133 toll roads, is better known as the Foothill-Eastern corridor, has been the more successful of the two Orange County toll systems. It beat projections until 2008, when the economy slumped, and so did its numbers.

The Foothill-Eastern roads brought in more toll revenue in the last fiscal year than ever before - more than $107 million, records show. But that was still only about 75 percent of what the projections expected, which was closer to $143 million.

The 73, known as the San Joaquin Hills Toll Road, took in nearly $93 million in the last fiscal year, about double the amount it raised in 2000. But at this point in its life, its planners had expected it to raise nearly $167 million a year – about 80 percent more than it did.

The agencies that operate the toll roads have steadily raised rates, in part to make up for the lower-than-expected ridership; a one-way trip on the Foothill-Eastern now costs up to $6.50. Telles said the chance of future increases is "probably good."

Experts pointed to an array of explanations for the lower-than-expected performance of the Orange County toll roads, from high gas prices to slower population growth. Road projects that improved traffic on nearby freeways also appear to have sucked traffic from the 73 in particular, experts said.

Wall Street rated the San Joaquin Hill's bonds as junk last year and gave the Foothill-Eastern bonds the lowest investment grade. The Foothill-Eastern agency is now looking to refinance its nearly $2.4 billion in debt, in part to get better interest rates and in part to lower payments by pushing back the payoff date.

It also is moving forward with a five-mile extension of the toll road that it expects to cost around $200 million, which would require even more borrowing. An earlier and much larger extension plan, which would have linked the road to I-5, crashed into environmental opposition and was blocked in 2008 by the California Coastal Commission.

"How do they propose to secure the dollars to do the work," wondered former Assemblywoman Marilyn Brewer of Newport Beach in a letter this summer to the state treasurer. She added: "An assessment needs to be done before further debt is incurred and the citizens of Orange County made to suffer serious consequences."

Brewer is no fan of the proposed extension, but she said her letter was prompted by the toll road agencies' attempt to collect development fees from businesses at John Wayne Airport. "The toll roads have acted like a homeowner who has used his house as an ATM," she said, "and now he wonders why he's in foreclosure."

Rare investigation

Lockyer, the state treasurer who publicly opposed earlier plans to extend the toll road, agreed in September that a financial review was warranted. He assigned the job to the California Debt and Investment Advisory Commission, which typically compiles data on public finance and issues educational reports.

This is the first time in recent memory that the commission has examined the finances of a local agency, said Dressler, the treasurer's spokesman. He said the commission's findings should be issued sometime after the first of the year.

"I think they should review it if they have concerns," said Orange County Supervisor Shawn Nelson, who serves on the Foothill-Eastern's board of directors. In particular, he voiced concern with a 2005 decision to transfer $120 million from the accounts of the Foothill-Eastern toll roads to shore up the finances of the struggling San Joaquin Hills road.

The Orange County toll roads have become a case study as transportation agencies across California and the country take a closer look at tolling as a way to supplement limited road dollars. It's not always positive; a citizen's group in Virginia used the San Joaquin Hills road as a cautionary tale as it fought a proposed toll road there.

Telles, the acting chief executive of the toll roads, said ridership and revenue is picking up as the recession eases. The toll-road agencies have made no secret that their revenues have fallen behind their projections, she said, acknowledging the disconnect in reports to investors and financial details on their website.

Still, Telles said, "over the next 10 years, I think we'll be able to meet our obligations, certainly."

"I think we (have) certainly lessons learned, that's for sure," she said. One of the main lessons, she added: "certainly making sure that your assumptions are realistic."

User Agreement

Keep it civil and stay on topic. No profanity, vulgarity, racial
slurs or personal attacks. People who harass others or joke about
tragedies will be blocked. By posting your comment, you agree to
allow Orange County Register Communications, Inc. the right to
republish your name and comment in additional Register publications
without any notification or payment.